Introduction to Economics
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| Scarcity | the situation in which unlimited wants exceed the limited resources available to fulfill those wants.
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| Economics | the study of the choices people make to attain their goals, given their scarce resources.
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| Market | group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
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| Market Analysis | analysis that involves comparing marginal benefits and marginal costs.
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| Microeconomics | the study of how households (families that live in houses) and firms (companies) make choices, how they interact in markets, and how the government attempts to influence their choices.
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| Macroeconomics | the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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| Economic Models | a simplified version of reality used to analyze real-world economic situations.
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| Opportunity Cost | the highest-valued alternative that must be given up to engage in an activity.
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| Trade-off | the idea that because of scarcity, producing more of one good or service means producing less of another good or service.
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| Three fundamental questions: | What goods and services will be produced?
How will the goods and services be produced?
Who will receive the goods and services produced?
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| Constrained Optimisation: Choices | consumers have to do the best with what they have.
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| Constrained Optimisation: Consumers | decisions based on how big their budget is.
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| Constrained Optimisation: What consumers try to achieve | maximize their utility (make themselves as happy / content as possible) based on their limited financial budget.
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| Constrained Optimisation: Producers | companies (also known as firms or businesses), want to maximize profits.
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| Profit | income from sales (also known as revenue), minus the costs of running the business.
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| Producers make decisions based on | What consumers want, and
How much it costs to make i.e. how to make goods and services most efficiently
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| Factors of Production | a combination of land, labour and capital.
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| Productive efficiency | the situation in which a good or service is produced at the lowest possible cost.
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| Allocative efficiency | a good or service's marginal benefit is equal to its marginal cost.
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| Voluntary exchange | the situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
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| Equity | the fair distribution of economic benefits.
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| Positive statements | economic statements explain economic facts i.e. average income in the UAE is AED 26,000 per month.
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| Normative statements | economic statements present a value judgment i.e. average income in the UAE should be higher than AED 26,000 per month.
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| Centrally planned economy | an economy in which the government decides how economic resources will be allocated i.e. North Korea
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| Market economy | an economy in which the decisions of households and firms interacting in markets allocate economic resources. Only really exists in theory, however the USA comes close.
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| Mixed economy | an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
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| Entrepreneur | person who sets up a business or businesses, taking on financial risks in the hope of profit.
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| Innovation | any improvement in a good or in the means of producing a good.
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| Technology | process used to produce goods or services.
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| Firm, company, or business | organization that produces a good or service.
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| Goods | goods we can see, touch also called tangible goods.
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| Services | activities done for others, services, also called intangible goods.
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| Revenue | payments received by businesses from selling goods and services.
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| Household | word used to identify a consumer.
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| Consumer | individual who buys products or services for personal use and not for manufacture or resale.
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| Land | natural resources, i.e trees, ocean, fertile land, minerals, sunshine
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| Labour | human resources, physical or mental
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| Capital | man-made resources used in the production process i.e. machines in a factory
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| Enterprise | organizing land, labour and capital in the production of goods or services
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| Human Capital | the knowledge, skill sets and intangible assets that add economic value to an individual.
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